QUESTION: I have a product that is selling very well at the moment. Should I invest in developing a new one or keep my focus on the one I already have?
PAUL TONER from Invest NI’s Innovation Research and Technology Team, replies:
Investing in new products and services is crucial to business growth and profitability.
No matter how successful your existing product currently is, it will follow the normal life cycle of any product and you will eventually come up against declining sales, increased competition and reduced margins.
So this is exactly the right time for you to begin developing a new product. But the process is risky and needs considerable planning and organisation.
Make sure you research the market to find out what customers want, what your competitors are doing and what has changed since you developed your first product.
As before, you will need to develop a product that has a unique selling point.
You should have a clear development process for your new product taking in the key stages of generating ideas, filtering these, drawing up the technical
specification, assessing market potential, creating a prototype, testing and refining this and eventually launching the product.
You need to consider your pricing strategy very early on as that will determine how much you can afford to invest in the project.
As you develop your ideas, keep a tight rein on costs and be ready to stop work on a product that doesn’t meet your criteria before committing a lot of time and resources.
A range of government grants and tax
breaks are available for research and new product development.
For further information, see the guides on ‘Innovation, research and development grants’ and ‘Tax reliefs and allowances for research and development’ on www.nibusinessinfo.co.uk.
QUESTION: I have been asked by my employees to allow them to pay their pension contributions through salary exchange. What does this mean and what are the advantages/disadvantages?
BOB FRASER, wealth adviser at Towry Law in Belfast, replies:
Salary exchange, otherwise known as salary sacrifice, is a well established method, recognised by HM Revenue & Customs for employees to make pension contributions in a highly tax effective way. With salary exchange, the employee establishes how much he or she wishes to contribute to their pension and informs their employer, who then reduces their pay by this amount.
The employer then directly pays this contribution into the company pension scheme as a company payment.
As a result, no national insurance liability is incurred on this amount either by the employer or the employee, and those employees liable to higher rate tax receive full tax relief immediately through the payroll.
Salary exchange is an attractive way for an employer to significantly increase the value of their employee benefits arrangements at no extra cost, in that the employee pays the same amount but because of tax savings has an increased investment into their pension.
For employees earning up to £670 per week, this could add an additional 11% to their pension contributions and for those earning in excess of £670 per week there is still a saving, although this
may only be at 1%.
However, salary exchange will usually result in employers saving 12.8% employers’ national insurance, and many employers will reinvest part or all of this back into their employees’ pension schemes, thereby giving the pension savings a significant boost.
While these are important benefits and potential savings, the employer must also give consideration to any impact of reducing employees’ basic salary to fund salary exchange. Provided the scheme is established correctly, other employer benefits such as death-in-service benefits should be based on an employee’s salary before salary exchange.
Also, mortgage and loan applications should not be affected, as most lenders will work out the level of loan on ability to repay based on net income.
However, salary exchange is not suitable for everybody. In particular, care should be taken for lower paid employees. Employees should also be aware of any possible impact on various state benefits, including SMP, S2P and incapacity benefits.
It is therefore sensible for employers to provider a platform for the employee to receive individual advice and guidance, so that their circumstances can be taken into consideration when deciding if it is right for them.